Friday, February 10, 2012

I lived and worked in Argentina from 1975 to 1979, and I've been back there about every other year since. I began my economic career in 1980 with a lengthy study of the Argentine economy, and I spent lots of time understanding how and why it suffered hyperinflation for many years and why its economy has done so poorly. While I lived there, the inflation rate averaged about 7% a month, or 125% a year, as I recall. During one three-week visit in the mid-1980s, the price level doubled, and I saw supermarkets post prices on chalkboards and update them as many as two or three times a day. The only way the government could fund its enormous deficits was to order the central bank to print money so it could pay its bills—it's called an inflation tax because those who accept the funny money, which loses its value rapidly, are effectively forced to transfer some of their wealth to the government.

Aside from the ravages of inflation and periodic depressions—I recall calculating that industrial production per capita had declined almost 35% during one decade—the other thing that stands out in my memories of Argentina is seeing newspaper headlines report almost daily that the president had issued a decree: one day ordering some company to lower its prices, another day allowing another company to raise its prices, another day announcing the new price of gasoline, and yet another day declaring that all workers would receive a 10% increase in pay to compensate for the higher prices. The president spent most of his time managing the economy, and he did that by receiving an endless number of people in his office who petitioned for the right to raise prices, or who petitioned for relief from the fallout of one of his previous diktats. It was government by presidential decree, and it was the closest I hope I'll ever come to living in a socialist economy.

Argentines don't realize how bad things are because for most of the past 200 years they have lived in a country governed by caudillos, their term for a president with semi-dictatorial powers who solves everyone's problems. It's akin to Mafia Dons, only worse, and that in turn has a lot to do with Argentina's strong Italian roots. Juan Perón was the most famous example, and his influence is alive and well in the figure of Cristina Kirchner, Argentina's current president and a devout Peronist. She revels in pitting the rich against the poor, and handing out favors to unions, favored industries, and political cronies, all while living in grand style. Among the many curiosities of the Argentine economy, housewives are eligible for social security when they "retire," because after all, being a housewife is a job, isn't it? Trouble is, the government periodically runs out of money to pay for all the goodies, which is why a monthly social security check today won't buy even a month's worth of food. Legions of Argentines are dependent on and trapped by government handouts which effectively force them to live in a manner we would consider way below the poverty level. Spreading the wealth only ends up destroying a country's wealth, and Argentina is the best example of that I know.

So it is with great concern and sadness that I see a creeping Peronism happening in the U.S. economy under President Obama. Consider this latest headline: "Obama to Announce Contraception Rule ‘Accommodation’ for Religious Organizations." What business does our president have telling organizations and insurance companies how they should run their business, what kinds of healthcare policies they can offer, and whether or not they can charge for contraceptive services? This goes way beyond right-to-life issues, religious freedom, and the ObamaCare mandate, as John Cochrane so nicely explained in his WSJ article yesterday. It's all about whether we are going to have our economy and our personal decisions micro-managed in Washington. Are we ready to embrace Peronism? Do we really want bailouts that start with favored companies (e.g., General Motors) and trample the rights of bondholders? Should the government really be forcing banks to offer bailouts to homeowners who paid too much for their homes? It's a slippery slope we're on that knows no end, unless the voters rise up in protest this November. It's my fervent hope that they will.

Argentine President Cristina Kirchner is reported to have bragged that since Obama was copying many of her policies, he lent them great legitimacy. Two years ago I was on a plane in Argentina and was conversing with the fellow next to me about what was going on in the U.S. economy. I lamented that "Obama is the United States' Perón," and he replied "and what's wrong with that?" I immediately realized he was a Peronist, and he turned out to be the minister of education for the province that the Kirchners used to govern. Peronism has been the bane of Argentina's economy and its people, but it continues to thrive because it corrupts its politicians with unimaginable power and money.

There continues to be the false premise that the problem in politics is too much money, when in fact the problem is too much government for sale ... these campaign finance laws are really treating only a symptom, not the disease. Until you get to the root cause, which is too much government, you are really not doing anything productive and in many cases you are doing harm.

Giving too much power to politicians (regardless of party affiliation) only ends up corrupting the entire process, because politicians end up selling favors, which in the end is an irresistible temptation. A tax hike here, a tax break there; higher prices here, lower prices there; a mandate here, an exemption from the mandate there. And so on, as we gradually lose our freedoms and our markets stop functioning efficiently. It's a very sad commentary on the state of the American economy and its politics. We really need to change; we really need less government, not more.

UPDATE: This is almost too good to be true. Apparently, Occupiers were paid to protest the CPAC (the Conservative Political Action Conference). This is exactly the strategy that the Kirchners have used in Argentina. If you travel to Argentina you are quite likely to run into a street protest that disrupts traffic, and the protest is almost certainly going to be some variation on the theme of how "the rich" are taking advantage of the poor. Three years ago I documented one such protest in Argentina. The parallels between Obama and the Peronists are too numerous to ignore. Protesters paid by unions and Peronist crony friends of the Kirchners have become so prevalent that the government has even come up with an official job designation for what they do: piqueteros. There are people in Argentina who actually make a living protesting against the supposed evils of capitalism. Believe it or not.

43 comments:

Scott-Great post. You are, sadly, quite right, but at the end of the day, we are not Argentina. Argentina has a subservient political culture and America has an individualistic political culture. We have gotten soft but not that soft. We can correct this thing electorally, but if that doesn't happen, our vitality will go into a state of suspended animation and the "demand" for American Peronism will ebb rapidly as people experience dwindling prosperity. Prosperity is not a distant memory, people will understand that Obama is a destroyer and will want to get back to business.

Finally, all societies trace the path laid out by those with means and firepower. In the USA, those with means and firepower generally want free-market capitalism. When the American Peronist calls in the army to enforce a socialist vision, will the 101st comply to protect their business interests and Swiss bank accounts? No, because they don't have any. The 101st will stand up to the American Peronist and protect individuals standing for the right to their property and their labor. If we can ever find the right standard bearer for liberty and American capitalism, the Obama Peronist vision would be ground into dust.

And as I'm sure you've noticed, when the stock market rises and unemployment declines, Obama's ratings go up so that today Rasmussen has him at 51% approval. God help us if he wins a second term, which seems likely unless the economy takes an unexpected dip in the Fall.

Very well said, and I agree 100%. The problem lies on both sides of the aisle.

The tax code needs thrown in the trash code and re-written with a flat rate and no favors for this segment of the population or that segment of the population.

State governments are starting to get just as bad. I don't live in CA, but looking at it from the outside I don't perceive a lot of difference with the way the state government there operates and the way that our federal government operates.

You mention that our federal government is taking actions similar to that of Argentina. With CA state government acting like the federal government, by extension CA is acting also like Argentina.

I'm not just picking on CA, either. Nevada, Illinois, Massachusetts, and even red states like SC and AL are corrupt and way off base with some of the things going on.

Sadly, I personally see no reason to believe that things will change much in November. At last glance, Obama's re-election chances have risen to 59.7% per Intrade and have risen in sequence with the economy and the SP500.

Oh come on Scott I love your libertarism,your economic insights(one of the best on the internet)but seriously I majored in latinAmerican History...Obama is noPeron. Since we are getting political which is your perogative..what liberal and Conservatives need to know...64% of voters are not Conservative and79% are not Liberal...what you needto realize is elections are won by the 16%...the independents who callthemselves moderate....win them over not preach to the choir

Scott,Another spot on commentary. What I don't understand is how you can present such prosaic assessments of the state of our government and still be sanguine about the future of our economy. After all, the president you aptly compare with Peron has a decent chance of being reelected. Furthermore, half the citizens of the USA now receive some sort of financial support from the Federal government. Isn't it just a matter of when, not if, a great reconcilliation begins and carries the economy into a secular decline?

BTW, did you know that Alan Greenspan was the first Market Monetarist? That explains the long access he had.

"Alan Greenspan saying the following at a FOMC meeting in 1992:

“Let me put it to you this way. If you ask whether we are confirming our view to contain the success that we’ve had to date on inflation, the answer is “yes.” I think that policy is implicit among the members of this Committee, and the specific instruments that we may be using or not using are really a quite secondary question. As I read it, there is no debate within this Committee to abandon our view that a non-inflationary environment is best for this country over the longer term. Everything else, once we’ve said that, becomes technical questions. I would say in that context that on the basis of the studies, we have seen that to drive nominal GDP, let’s assume at 4-1/2 percent, in our old philosophy we would have said that [requires] a 4-1/2 percent growth in M2. In today’s analysis, we would say it’s significantly less than that. I’m basically arguing that we are really in a sense using [unintelligible] a nominal GDP goal of which the money supply relationships are technical mechanisms to achieve that. And I don’t see any change in our view…and we will know they are convinced (about “price stability”) when we see the 30-year Treasury at 5-1/2 percent.“

Yes, in the eyes of the Vatican, women taking birth control, or using condoms in sex are sinners.

That acknowledged disobedience is between the Catholics and their church. There is nothing about that situation that gives the state the right to force the church to pay for something that is explicitly against church doctrine.

You may ask, given the mass disobedience, why are so many Catholics outraged.

First of all, even though the states position on pre pregnancy contraception is consistent with the majority of Catholics, most people are smart enough to realize that the next state promulgation could very likely not be. They don't want the state mediating between them and their church.

Secondly - Everyday Catholics accept pre-pregnancy contraception, but absolutely do not readily accept the morning after pill and other post-pregnancy "options" that are supported by the state.

You don't have to agree with Catholic positions to understand why the state's recent ruling is offensive to them. And you don't have to be Catholic to see how this is a good example of why NO ONE should want the state deciding what they should or shouldn't receive for health care. Scares the hell out of me.

Excellent post Scott! In 1900 Argentina was #4 in the world in per capita GDP. Today they are over 70th. Conversely, while Peron was still spreading his poison to Argentina, Pinochet was changing Chile by implementing free markets. Chile has passed Argentina in both per capita GDP and life expectancy. Policies matter.

I would disagree with the phrasing of your question, but maybe this is the wrong forum. I think a solution that serves everyone’s purpose is to make it so that an individual is not tied to their employers plan. Simply get rid of the current tax benefits for employee sponsored health plans, or give a health insurance deduction for everyone no matter where they buy their plan. Then, if you don’t like the plan your Catholic or Christian Science employer has, there is no disadvantage to buying it somewhere else

This would also improve competition, maybe creating new products and contributing to reducing health care costs overall.

I watched a documentary on Russia that said almost the same thing - the Russians are a people with a slave mentality who love a strong paternal leader to fix local "injustices" but who rules with patronage. If that becomes possible in the USA, then God help the rest of the world. Fairly unlikely I hope.

Did you notice that one of your commentators praised Pinochet!!! Talk about re-writing history as if Pinochet was a great man for civil liberty and freedom. Even the very rich were afraid under his arbitrary regime.

Sometime it is worth examining one's bedfellows! When I read that I was shocked, simply shocked that anyone could praise Pinochet's government

wow, great post. very sad yet very true. The question is how do we open people's minds to see the truths? And what can we do to prepare for the further march down this path? Especially thinking of long term investments here.

The free market reforms extended life expectency in Chile to well beyond what Peronist Argentina experienced. People in Chile live an average of 3 years longer than those in Argentina. Socialism shortens lives because it stunts economic growth.

Junkyard, the US ranks 50th in life expectancy, according to the CIA. This is well below such countries as Sweden (16th), Finland (39th), Canada (12th), Norway (25th), and even Greece (30!). Many of these countries have health care delivery systems and economies that would be decried on this blog as Socialist or hopelessly contaminated with socialist tendencies. It is probably worthwhile checking your facts before making such groundless statements. Also, again according to the CIA 2011 factbook, Chile ranks 3/4 of a year longer life expectancy than Argentina, not 3 years. It is a little discouraging to see that no one of the other readers, supposedly interested in a reality-based discussion has picked up on this.

According to the United Nations, the average life expectancy for Chile is 78.6 years. The average life expectancy for Argentina is 75.3 years. I rounded down to 3 years.

http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy

Concerning economic freedom, the more free the society, the longer the life expectancy. The Heritage foundation issues an economic freedom index every year and breaks the countries down into five categories. Here is the average life expectancy for each of the five categories:

Healthcare delivery is only one aspect that makes a society free. Even among the "free economies", healthcare spending by the government varies widely from 34% of total healthcare spending in Singapore to 78% in New Zealand. The correlation between the percentage of healthcare spending by the government as a percentage of total healthcare spending and life expectancy is very poor:

I was coming out of my local Trader Joe's a few days ago, and a signature jockey was trying to get folks to sign a "Tax a Millionaire" petition. I understand this is the work of avowed socialist and Yaley, Van Jones.